Question 1

The deforestation of rainforests due to human activities has increased because _____

Accepted Answer

A) long-run economic considerations outweigh short-run considerations. 
B) global economic considerations outweigh domestic considerations. 
C) private property rights can be enforced on rainforests. 
D) the value of the jobs created by deforestation exceeds the cost to society. 
E) there are no property rights on rainforests. 
A) long-run economic considerations outweigh short-run considerations. 
B) global economic considerations outweigh domestic considerations. 
C) private property rights can be enforced on rainforests. 
D) the value of the jobs created by deforestation exceeds the cost to society. 
E) there are no property rights on rainforests.

Question 2

In a free market,a firm's equilibrium output is determined _____

Accepted Answer

A) where marginal social cost equals marginal social benefit. 
B) where marginal private benefit equals marginal social benefit. 
C) where marginal social cost equals marginal private cost. 
D) where marginal private cost equals marginal private benefit. 
E) by government. 
A) where marginal social cost equals marginal social benefit. 
B) where marginal private benefit equals marginal social benefit. 
C) where marginal social cost equals marginal private cost. 
D) where marginal private cost equals marginal private benefit. 
E) by government.

Question 3

Exhibit 17.2
  
-Refer to Exhibit 17.2,which shows market equilibrium in the presence of an externality in an economy.The equilibrium level of output for the firm is _____

Accepted Answer

A) 0 units. 
B) 100 units. 
C) between 0 and 100 units. 
D) 160 units. 
E) between 100 and 160 units. 
A) 0 units. 
B) 100 units. 
C) between 0 and 100 units. 
D) 160 units. 
E) between 100 and 160 units.

Question 4

An externality is _____

Accepted Answer

A) a cost of a transaction that is borne by the government. 
B) a benefit of a transaction that is enjoyed by the firms. 
C) a cost or benefit that arises when market price changes. 
D) any cost or benefit of a transaction that is not accounted for in the market price. 
E) the revenue generated by a firm. 
A) a cost of a transaction that is borne by the government. 
B) a benefit of a transaction that is enjoyed by the firms. 
C) a cost or benefit that arises when market price changes. 
D) any cost or benefit of a transaction that is not accounted for in the market price. 
E) the revenue generated by a firm.

Question 5

Exhibit 17.3
  
-Refer to Exhibit 17.3,which shows equilibrium in a market in the presence of an externality.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____

Accepted Answer

A) subsidizing production of the good by $10 per unit. 
B) imposing a tax of $10 per unit on the firm producing the good. 
C) using a quota system to restrict production to 160 units. 
D) subsidizing production of the good by $5 per unit. 
E) letting the private market operate freely. 
A) subsidizing production of the good by $10 per unit. 
B) imposing a tax of $10 per unit on the firm producing the good. 
C) using a quota system to restrict production to 160 units. 
D) subsidizing production of the good by $5 per unit. 
E) letting the private market operate freely.

Question 6

The marginal social benefit curve for water quality slopes downward because _____

Accepted Answer

A) the total benefit from clean water decreases as water becomes cleaner. 
B) the added benefit from cleaner water is greater when water quality is poor than when water quality is high. 
C) the added benefit from cleaner water is smaller when water quality is poor than when water quality is high. 
D) the total benefit from clean water increases as water becomes cleaner. 
E) the average benefit of clean water is higher. 
A) the total benefit from clean water decreases as water becomes cleaner. 
B) the added benefit from cleaner water is greater when water quality is poor than when water quality is high. 
C) the added benefit from cleaner water is smaller when water quality is poor than when water quality is high. 
D) the total benefit from clean water increases as water becomes cleaner. 
E) the average benefit of clean water is higher.

Question 7

The Coase solution to the externality problem works only when bargaining costs are high.

Accepted Answer

A) True 
 B)False

Question 8

Suppose a city builds a new park that is advertised as being "open to the public," and the grass in the park is ruined by overuse within two months.This would be an example of _____.

Accepted Answer

A) adverse selection 
B) moral hazard 
C) the common-pool problem 
D) a positive externality 
E) arbitrage 
A) adverse selection 
B) moral hazard 
C) the common-pool problem 
D) a positive externality 
E) arbitrage

Question 9

If the marginal social cost of producing a product exceeds the marginal social benefit,producers will produce less of it.

Accepted Answer

A) True 
 B)False

Question 10

If production is characterized by variable technology and generates pollution,the optimal level of air quality occurs where _____

Accepted Answer

A) the marginal private cost of air quality equals the marginal social benefit. 
B) the marginal social cost of air quality equals the marginal social benefit. 
C) the marginal social cost of air quality equals the marginal private cost of air quality. 
D) government regulators set it. 
E) the average private cost equals the average social cost. 
A) the marginal private cost of air quality equals the marginal social benefit. 
B) the marginal social cost of air quality equals the marginal social benefit. 
C) the marginal social cost of air quality equals the marginal private cost of air quality. 
D) government regulators set it. 
E) the average private cost equals the average social cost.

Question 11

A metal stamping factory moves next to a day care center.Noise from the factory makes it impossible for the kids to take a nap.Which of the following is likely to be true according to the Coase theorem?

Accepted Answer

A) The factory should move. 
B) The day care center should move. 
C) The factory should install sound insulation. 
D) The day care center should install sound insulation. 
E) An optimal solution cannot be achieved unless the costs are given. 
A) The factory should move. 
B) The day care center should move. 
C) The factory should install sound insulation. 
D) The day care center should install sound insulation. 
E) An optimal solution cannot be achieved unless the costs are given.

Question 12

A person can cause a negative externality by _____

Accepted Answer

A) being immunized. 
B) having a loud conversation in an office. 
C) landscaping her lawn. 
D) paying taxes. 
E) attending school. 
A) being immunized. 
B) having a loud conversation in an office. 
C) landscaping her lawn. 
D) paying taxes. 
E) attending school.

Question 13

Exhibit 17.1
  
-Refer to Exhibit 17.1,which shows a market for electricity.The marginal social cost curve includes _____

Accepted Answer

A) the marginal private cost. 
B) the marginal external cost. 
C) both the marginal private cost and the marginal external cost. 
D) the marginal private cost minus the marginal external cost. 
E) the marginal external cost minus the marginal private cost. 
A) the marginal private cost. 
B) the marginal external cost. 
C) both the marginal private cost and the marginal external cost. 
D) the marginal private cost minus the marginal external cost. 
E) the marginal external cost minus the marginal private cost.

Question 14

Fishing,lumbering,tourism,and city buildings in Canada are harmed by acid rain,most of which comes from the United States.According to the Coase theorem,the problem is _____

Accepted Answer

A) easy to solve because the United States and Canada are geographically close. 
B) easy to solve because the United States and Canada have similar geographical features. 
C) easy to solve because same international property rights are applicable to both countries. 
D) hard to solve because international negotiations are costly. 
E) hard to solve because Canadians have property rights to clean, nonacidic rain. 
A) easy to solve because the United States and Canada are geographically close. 
B) easy to solve because the United States and Canada have similar geographical features. 
C) easy to solve because same international property rights are applicable to both countries. 
D) hard to solve because international negotiations are costly. 
E) hard to solve because Canadians have property rights to clean, nonacidic rain.

Question 15

When using the traditional command-and-control approach to environmental regulation,the government attempts to _____

Accepted Answer

A) set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement. 
B) determine the most efficient method for different industries. 
C) make allowances for differences across industries and between firms. 
D) set engineering standards that are applicable to all situations and do not recognize unique circumstances. 
E) set a maximum requirement and then allows the individual firm the latitude of choosing the most efficient method. 
A) set a minimum requirement and then allows the firm to determine the most efficient method for achieving this requirement. 
B) determine the most efficient method for different industries. 
C) make allowances for differences across industries and between firms. 
D) set engineering standards that are applicable to all situations and do not recognize unique circumstances. 
E) set a maximum requirement and then allows the individual firm the latitude of choosing the most efficient method.

Question 16

In order to increase society's well-being,a production process that generates a positive externality should be _____

Accepted Answer

A) taxed to discourage production. 
B) subsidized to encourage production. 
C) taxed to encourage production. 
D) subsidized to discourage production. 
E) continued without government intervention. 
A) taxed to discourage production. 
B) subsidized to encourage production. 
C) taxed to encourage production. 
D) subsidized to discourage production. 
E) continued without government intervention.

Question 17

When a system of pollution rights is in effect,polluters have no economic incentive to reduce the amount of pollution they generate.

Accepted Answer

A) True 
 B)False

Question 18

According to the Coase theorem,_____

Accepted Answer

A) government regulation is necessary to eliminate negative externalities. 
B) externality problems can be solved efficiently by the assignment of property rights if transaction costs are low. 
C) it is necessary to assign property rights when bargaining costs are high. 
D) the assignment of property rights lead to equitable but inefficient solutions to externality problems. 
E) externality problems can be solved efficiently by the assignment of property rights if transaction costs are high. 
A) government regulation is necessary to eliminate negative externalities. 
B) externality problems can be solved efficiently by the assignment of property rights if transaction costs are low. 
C) it is necessary to assign property rights when bargaining costs are high. 
D) the assignment of property rights lead to equitable but inefficient solutions to externality problems. 
E) externality problems can be solved efficiently by the assignment of property rights if transaction costs are high.

Question 19

Governments often subsidize activities that generate positive externalities in order to get people to engage in more of them.

Accepted Answer

A) True 
 B)False

Question 20

According to the Coase theorem,externality problems may be solved if the parties involved can negotiate.Which of the following is also required for an efficient solution?

Accepted Answer

A) clearly defined bargaining costs and low transaction costs 
B) enforceable bargaining costs and high transaction costs 
C) enforceable property rights and low bargaining costs 
D) enforceable property rights and high bargaining costs 
E) government intervention 
A) clearly defined bargaining costs and low transaction costs 
B) enforceable bargaining costs and high transaction costs 
C) enforceable property rights and low bargaining costs 
D) enforceable property rights and high bargaining costs 
E) government intervention

Exam 17: Externalities and the Environment

The deforestation of rainforests due to human activities has increased because _____

In a free market,a firm's equilibrium output is determined _____

Exhibit 17.2 -Refer to Exhibit 17.2,which shows market equilibrium in the presence of an externality in an economy.The equilibrium level of output for the firm is _____

An externality is _____

Exhibit 17.3 -Refer to Exhibit 17.3,which shows equilibrium in a market in the presence of an externality.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____

The marginal social benefit curve for water quality slopes downward because _____

The Coase solution to the externality problem works only when bargaining costs are high.

Suppose a city builds a new park that is advertised as being "open to the public," and the grass in the park is ruined by overuse within two months.This would be an example of _____.

If the marginal social cost of producing a product exceeds the marginal social benefit,producers will produce less of it.

If production is characterized by variable technology and generates pollution,the optimal level of air quality occurs where _____

A metal stamping factory moves next to a day care center.Noise from the factory makes it impossible for the kids to take a nap.Which of the following is likely to be true according to the Coase theorem?

A person can cause a negative externality by _____

Exhibit 17.1 -Refer to Exhibit 17.1,which shows a market for electricity.The marginal social cost curve includes _____

Fishing,lumbering,tourism,and city buildings in Canada are harmed by acid rain,most of which comes from the United States.According to the Coase theorem,the problem is _____

When using the traditional command-and-control approach to environmental regulation,the government attempts to _____

In order to increase society's well-being,a production process that generates a positive externality should be _____

When a system of pollution rights is in effect,polluters have no economic incentive to reduce the amount of pollution they generate.

According to the Coase theorem,_____

Governments often subsidize activities that generate positive externalities in order to get people to engage in more of them.

According to the Coase theorem,externality problems may be solved if the parties involved can negotiate.Which of the following is also required for an efficient solution?

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